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Health, Education, and the Post-Retirement Evolution of Household Assets

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  • James M. Poterba
  • Steven F. Venti
  • David A. Wise

Abstract

This paper explores the relationship between education and the evolution of wealth after retirement. Asset growth following retirement depends in part on health capital and financial capital accumulated prior to retirement, which in turn are strongly related to educational attainment. These “initial conditions” for retirement can have a lingering effect on subsequent asset evolution. Our aim is to disentangle the effects of education on post-retirement asset evolution that operate through health and financial capital accumulated prior to retirement from the effects of education that impinge directly on asset evolution after retirement. We consider the indirect effect of education through financial resources—in particular Social Security benefits and defined benefit pension benefits—and through health capital that was accumulated before retirement. We also consider the direct effect of education on asset growth following retirement, emphasizing the correlation between education and the returns households earn on their post-retirement investments. Households with different levels of education invest, on average, in different assets, and they may consequently earn different rates of return. Finally, we consider the additional effects of education that are not captured through these pathways. Our empirical findings suggest a substantial association between education and the evolution of assets. For example, for two person households the growth of assets between 1998 and 2008 is on average much greater for college graduates than for those with less than a high school degree. This difference ranges from about $82,000 in the lowest asset quintile to over $600,000 in the highest.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18695.

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Date of creation: Jan 2013
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Publication status: published as James Poterba & Steven Venti & David A. Wise, 2013. "Health, Education, and the Postretirement Evolution of Household Assets," Journal of Human Capital, University of Chicago Press, vol. 7(4), pages 297 - 339.
Handle: RePEc:nbr:nberwo:18695

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  1. Kemptner, Daniel & Jürges, Hendrik & Reinhold, Steffen, 2010. "Changes in Compulsory Schooling and the Causal Effect of Education on Health: Evidence from Germany," MEA discussion paper series 10200, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
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  11. James M. Poterba & Steven F. Venti & David A. Wise, 2011. "Family Status Transitions, Latent Health, and the Post-Retirement Evolution of Assets," NBER Chapters, in: Explorations in the Economics of Aging, pages 23-69 National Bureau of Economic Research, Inc.
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Cited by:
  1. Annamaria Lusardi & Olivia S. Mitchell, 2014. "The Economic Importance of Financial Literacy: Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 52(1), pages 5-44, March.
  2. John V. Duca & Anil Kumar, 2011. "Financial literacy and mortgage equity withdrawals," Working Papers 1110, Federal Reserve Bank of Dallas.
  3. James Banks & Carl Emmerson & Gemma C. Tetlow, 2014. "Effect of Pensions and Disability Benefits on Retirement in the UK," NBER Working Papers 19907, National Bureau of Economic Research, Inc.
  4. Arie Kapteyn & Erik Meijer, 2013. "A Comparison of Different Measures of Health and their Relation to Labor Force Transitions at Older Ages," NBER Chapters, in: Discoveries in the Economics of Aging, pages 115-150 National Bureau of Economic Research, Inc.
  5. Alan L. Gustman & Thomas L. Steinmeier, 2014. "The Role of Health in Retirement," NBER Working Papers 19902, National Bureau of Economic Research, Inc.
  6. Steven F. Venti, 2013. "Comment on "A Comparison of Different Measures of Health and their Relation to Labor Force Transitions at Older Ages"," NBER Chapters, in: Discoveries in the Economics of Aging, pages 151-156 National Bureau of Economic Research, Inc.
  7. Courtney Coile & Kevin S. Milligan & David A. Wise, 2014. "Social Security Programs and Retirement Around the World: Disability Insurance Programs and Retirement - Introduction and Summary," NBER Working Papers 20120, National Bureau of Economic Research, Inc.

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